Compound Interest
Compound interest is the interest on savings calculated on both the initial principal and the accumulated interest from previous periods.
“Interest on interest,” or the power of compound interest, will make a sum grow faster than simple interest, which is calculated only on the principal amount. Compounding multiplies money at an accelerated rate. The greater the number of compounding periods, the greater the compound interest will be. Compound interest can help your investments but make debt more difficult.
KEY TAKEAWAYS:
- Compounding multiplies money at an accelerated rate.
- Compound interest is interest calculated on the initial principal, which also includes all of the accumulated interest from previous periods.
- Generating “interest on interest” is known as the power of compound interest.
- Interest can be compounded on any given frequency schedule, such as continuous, daily, or annually. – Investopedia